A company, Rugger, manufactures two products: the Try and the Conversion. The company has traditionally allocated its production overhead costs on the basis of the 100,000 direct hours used in the manufacturing department. Direct labour costs £10 per hour. The company is now considering using activity-based costing. Details of the overheads and cost drivers are as follows:

You have the following information about the products.

 Required:

Calculate a product cost using

(i) traditional total absorption costing, recovering overheads using direct labour hours;

(ii) activity-based costing, and then

(iii) comment on any differences.

Transcribed Image Text:

Production Overheads (a) Manufacturing (b) Materials handling (c) Inspection (d) Set-ups Total Cost Driver Cost () 10,000 Assembly-line hours 60,000 Number of stores notes 40,000 Number of inspections 5,000 Number of set-ups Total 100,000 hours 1,500 notes 600 inspections 500 set-ups